Award-winning author Jim Blasingame lists the top three primary shifts of the new age that a small business must monitor constantly in order to be successful in the Age of the Customer. You can purchase his new book The Age of the Customer here .
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As the economy recovers, you’re likely to meet a starry-eyed human babbling on about becoming a business owner.
Probing for the object of this person’s entrepreneurial infatuation will precipitate the what, where, how and when questions and, finally, the most important question: Why do you want to own a business? Answers to this last question, unfortunately, often produce what I call “The Myths of Small Business Ownership.” Here are four:
Myth 1: When I’m an owner, I’ll be my own boss.
That’s right; you won’t have an employer telling you what to do. But you’ll trade that one boss for many others: customers, landlords, bankers, the IRS, regulators, even employees.
Modern management is less “bossing” and more leading and inspiring. In a small business, everyone must wear several hats and the dominator management model doesn’t work well in this modern multi-tasking environment.
Myth 2: When I own my own business, I won’t have to work as hard as I do now.
This is actually true – you will work much harder. Ramona Arnett, CEO of Ramona Enterprises, said it best, “Owning a business means working 80 hours a week so you can avoid working 40 hours for someone else.”
The irony is you’ll actually want to work harder when you understand everything in your business belongs to you. Even the irritating, frustrating, and frightening challenges will take on a new perspective when you realize you also own theopportunities you turn them into. You’ll turn the lights on in the morning and off in the evening not because you want to work more, but because you won’t want to miss any part of your entrepreneurial dream coming true.
Myth 3: When I own my own business, I can take a day off whenever I want.
Well, maybe. However, you may find that your business has such a compelling attraction that you won’t want to take off. Indeed, it’s more likely that whatever interests you had as an employee will become jealous of your business.
Myth 4: When I own my own business, I’ll make a lot of money.
If the only reason you want to own a business is to get rich, you probably won’t be a happy owner. It’s true – you actually could get rich, but it’s more likely that you’ll just make a living.
Being a successful business owner first means loving what you do. Pursuing wealth should be secondary and ironically is actually more likely to happen when in this subordinate role.
Write this on a rock … For maximum small business success, don’t fall prey to the myths of ownership.
In previous columns I introduced three crowdfunding sources including donation fundraising, startup transactions, and lending. Now let’s talk about the fourth and most problematic method: raising capital from investors.
Historically, small businesses acquired investor capital from two sources: venture capital and angel investors. So when crowdfunding popped up on our radar, many in the entrepreneurial universe got excited thinking the Internet could be used as a lever for investor capital as it has for other business applications. Here are four reasons why I was not among this group.
1. Securities Laws
Remember those two crowdfunding markers identified in my previous columns, “innumerable and anonymous?” Well, they’re the most problematic in raising investor funds because, by definition, the public (people you don’t know) has access to Internet offerings. U.S. securities laws are enormously restrictive about selling investments to the public, and the approval process is prohibitively expensive for most startups. Plus, even as part of Obama’s 2012 JOBS Act, the Securities and Exchange Commission (SEC) has yet to approve crowdfunding for investors and won’t say when rulemaking will happen.
2. Financial reporting
One of the essential markers of investingis financial reporting. Alas, one of the markers of the small business sector is poor financial recordkeeping. When small businesses learn the level of disclosure required for crowdfunding investment, most will not pursue this path.
3. Minority shareholders
Investors become shareholders. A crowdfunding offering is likely to create many shareholders. When small business owners understand the maintenance expense and effort to comply with mandated reporting to shareholders, most will seek other capital sources.
4. Exit strategies
Small business owners love their businesses, but most don’t have an exit strategy. Since capital is not romantic, it’s unlikely that a small business owner’s idea of an exit will align with that of crowdfunding investors. And with no after-market for these shares, crowdfunding creates an inherent exit expectation conflict, which will be a non-starter.
When and if SEC rulemaking occurs, crowdfunding equity will benefit some entrepreneurs. But I predict this capital source won’t be a high percentage option for most small businesses. Crowdfunding is part of the future of small business capitalization, but it’s not for everyone.
Write this on a rock … Don’t count on crowdfunding to replace your banking relationships.
Jim Blasingame is the author of the award-winning book, “The Age of the Customer: Prepare for the Moment of Relevance.”
In the old days, when someone would call or come in the door of your business for the first time, you would ask them how they found you. And since it’s not your customer’s job to catalog such things for future retrieval, you probably had to help them a little by reciting examples of where you might have spent your marketing budget: an ad on the radio, TV, newspaper, Yellow Pages, a Little League uniform, etc.
Here in the second decade of the 21st century, asking how customers find you is still important, but with one new element: For the past 10-15 years, you should also include, “or did you find us online?”
Not too long ago, saying “our website” instead of “online” would have been appropriate. Today, online is best because customers can find you in other places on the Internet, including the social media and customer review platforms, even if, Heaven forbid, you don’t have a website.
The question is not whether your company is “out there” online today, but rather to what degree and – this is so important it will be on the test – what is being said about your business.
We wanted to know how much small businesses are attributing sales performance to the Internet, so recently we asked our radio and online audience this question: “How much of your 2011 sales do you think will result from some kind of Internet activity, even as simple as people just finding your business mentioned online?” The results made me very happy. About 90% of our respondents said they would be able to attribute some sales in 2011 from the Internet.
Breaking the numbers down, over 50% said less than half of 2011 sales would be attributed to online activity. The next number is really exciting: About one-fourth said they would see more than half of their sales from the Internet. And finally, the bookends: Those who said all of their sales would come from the Internet were almost the same – around 10% – as those who recorded a goose egg because (read this with a nasal whine), “We don’t have a website.”
As the Age of the Customer™ becomes the marketplace norm, your customers are increasingly demanding more connection and support from you with online resources. Any company that is not making at least some effort to meet the growing online support demand will experience the painful death of irrelevancy.
Write this on a rock … You don’t have to win the online race to be successful, but you do have to show up and compete.
“You can’t teach an old dog new tricks.” It’s a popular phrase, but in the Age of the Customer small businesses are learning the hard way that their old dogs need to learn some new tricks — and quickly.
In the second century B.C., the Roman statesman, Cato, began learning Greek at the age of 75. When asked why he was undertaking such a challenging educational enterprise at his advanced age, he replied, “This is the youngest age I have.”
No matter what we do, no matter where we go, owner or employee, we must continue to study, train and learn. Everyone in your organization. Everyone, every day, needs life-long learning. And in the age of globalism and interconnectivity, it is more important than ever before.
Are you feeling threatened, maybe even frightened these days with all of the economic challenges, plus the changes brought on by the advent of the information age? Me, too. Sometimes it seems we’re like Alice – running as hard as we can just to stay in one place. And in our Wonderland, everything is changing so fast that what we learned today may be obsolete tomorrow.
The irony is the thing creating so much potential for anxiety is also the thing that can help you stay competitive. That thing is called technology. Specifically, the unprecedented wealth of information available on the Internet.
When I feel threatened by all of the new knowledge and capability that’s emerging, I just make a point to learn something new every day, with emphasis on social media and e-commerce, or how my industry is adapting to the virtual marketplace. When I acquire that new understanding or capability, I smile like Alice’s Cheshire Cat because learning makes me feel stronger, as if I’ve gained a little ground in the marketplace. Maybe today I put the heat on a competitor.
Give it a try. The only thing better than your garden variety smile is one that comes from knowing you just got a little smarter.
Remember the wisdom of the statesman: This is the youngest age you have.
It’s your moment of relevance. Take advantage of it.
—Earth, Stardate 8507 (The Age of the Seller)
Once upon a time, in a galaxy that today must seem far, far away, sellers controlled all information about their products, services and innovations. Consequently, customers learned what they needed to know from salespeople, who traveled far and wide dispensing information to, and collecting sales from, grateful and beholden customers.
If one had observed such a meeting, the customer would have nodded his head in wonderment as the salesperson revealed the virtual magic that was his product. And in this land, the Force — control and availability of information — was with the seller.
On present-day planet Earth things haven’t changed. Customers still buy from sellers that still provide product information. But observing a customer and salesperson today you will see the former explaining how much she knows about the business’s products, while the salesperson nods his head in wonderment. In this universe the salesperson is grateful and beholden if the customer will just contacts him before deciding from whom she will buy.
In The Age of the Customer, the Force—access to lots of information—is with the customer. It began with the remote control, video recorders, TiVo, DVR, Internet, on-demand everything, social media, and more recently, mobile computing. All of the platforms that make up what we now call social media have become the Light Saber of consumers and business customers in the new Age.
Armed with an abundance of online content, commenting platforms, and social media communities, customers not only have access to the information they need to make a better decision, but also co-own brand messages in the sub-space chatter about any given seller or product as it is being evaluated in the online dimension. Alas, too many small businesses are still operating a Stardate 8507 strategy in Stardate 10912. The predominant response by one of these sellers is frustration that they have diminishing control over customer relationships, and therefore their future.
Scotty won’t be able to beam you up if you don’t learn that the only way to end this frustration and assume at least co-ownership of the Force is to embrace online community-building and join the conversations that are being conducted about your business, products, service and industry.
The good news is that this “joining” is not only relatively easy, but also can be done with minimal direct cost. If you don’t know how, ask a 25-year-old customer.
Write this on a rock …
In Stardate 10912, the Force is with the customer.
Blasingame’s 2nd Law of Small Business states: It’s redundant to say “under-capitalized small business.”
Growing small businesses operate in the narrow danger zone between the leading edge and the bleeding edge of the marketplace, and since our capital reserves and options are limited, every small business CEO makes decisions every day that are at once as much about survival as success.
Operate for Survival
Here are four “operate for survival” objectives to do that will serve you well this year, followed by four “plan for success” ideas.
1. Cash used to be King, today it’s the Emperor. Ask employees to find and cut waste. Get them involved in reviewing operational processes and eliminate or tighten up inefficient ones. What’s their motivation? How about job security? Watch the pennies and the dollars will take care of themselves.
2. Stay close to accounts receivables and cash management. Many tasks can and should be delegated, but in a small business, whether you’re growing or just holding on, cash management is not one of them.
3. Declare war on excess inventory. Inventory is cash you can’t spend until a customer pays for it. Practice Just-In-Time (JIT) inventory management, not just-in-case.
4. Stay close to customers. This isn’t complicated: Ask customers what they want and then give it to them. We’re in the Age of the Customer – know your customers’ expectations.
Plan for Success
Since opportunities will present themselves over the next year, here are four “plan for success” thoughts to consider as you take risks:
1. Eyes wide open. The marketplace we’re entering is going to look different than last year. That means opportunities – and threats – will look different, too.
2. Measure twice, cut once. Before taking a big growth step, apply the carpenter’s rule. Don’t scrimp on due diligence: check your assumptions, recheck your assumptions and then proceed with the best information you have, which might tell you to stop.
3. Mistakes are expensive. Can your capital picture support inevitable mistakes and/or surprises? Remember, there is a very fine line separating opportunity at the leading edge and the cash-eating bleeding edge.
4. Make your banker your partner. Keep him or her informed whether the news is good or bad – especially the bad. Remember this: An uninformed banker is a scared banker and no one ever got any help out of a scared banker.
Successful small business CEOs operate for survival while planning for success.
The Age of the Customer is disrupting and making obsolete many older practices, but not the requirement for business planning, especially cash flow.
A business plan is the result of thinking, researching, strategizing, and reaching conclusions about how to pursue opportunities. It may exist only in the head of the planner, but it’s better when written down.
Whether elaborate or simple, a written business plan is an assembly of facts, ideas, assumptions, and projections about the future. Here are three ways to use a written plan:
- To document the due diligence on a new business or the future of an existing one.
- To evaluate opportunities and challenges, and compare them with your strengths and weaknesses.
- To assist when getting a bank loan and essential when courting investors.
So how does a static, written plan work when a business is always in motion? It works when you turn your plan into planning. A plan is like a parked car; planning is taking that car on a trip.
Planning is measuring your business motion against the baseline of assumptions and projections you made in your plan. Planning allows you to see how smart you were when the plan was written, or where your research and assumption skills need work. It also highlights external forces you face.
Written business plans often become collateral damage during challenging economic times. But you can’t allow planning to meet the same fate. Indeed, when things slow down there is even greater need to check your position than when things are rockin’ and rollin’.
Here is a critical two-step planning activity that is the heart of a business plan and the essence of planning. Beginning with these will help you operate more successfully anytime, but especially when things are slow.
1. Build a 12-month cash flow spreadsheet in a program like Excel, so you can project and track the monthly relationship between cash collections and cash disbursements from all sources. This planning tool will provide a rolling picture of cash flow in any given month.
2. Look at the “Ending cash” number at the bottom of each month’s column. A negative number in any month means you’ll need to add cash from sales, reduce expenses, add cash from another source, like a bank loan, or some combination.
A banker once told me that if I could bring him only one financial document with a loan request it should be a 12-month cash flow projection that included both how the borrowed cash would be used and the debt service. I always listen to my banker and you should too.
A business plan is important, but planning is essential.